Warning Notice no. 5 of October 17, 2019

No-deal Brexit - Requirements for intermediaries that provide investment services.

On March 25, 2019, the Italian Government has enacted Decree Law no. 22 (hereinafter also referred to as the “decree”) - subsequently converted, with amendments, by Law 41 of 20 May 2019 - which provides for an Italian transitional regime applicable in the event the United Kingdom leaves the European Union without a deal[1].

Intermediaries that provide investment services can take advantage of the transitional regime, by continuing to supply in Italy the same services, subject to prior notification sent to the competent authorities. Operation beyond the transitional period[2] is subject to the presentation of an application for authorisation to the same authorities no later than six months after the withdrawal date.

The entities that have to end their activity by the date of withdrawal must inform, among others, their clients of the initiatives taken to ensure the orderly termination of activity. The same information, due to the termination of activity, must also be provided by intermediaries that don’t notify or, while having sent notification, don’t apply for authorisation within the deadline of six months from the date of the start of the transitional period.

Similarly, such information must be provided by UK investment firms that – pursuant to Article 4(4) of the decree – may continue to manage the life cycle events of derivatives contracts not subject to clearing by a central counterparty (over the counter), even when this involves changing the contracts or entering into new contracts, as follows:

• in the absence of the notification (pursuant to Article 3(3), 3(4), of the decree) only with regard to contracts existing at the date of withdrawal, for the six months following that date;
• in the absence of the request for authorisation (pursuant to Article 3(7) of the decree) only with regard to contracts existing at the end of the period allotted for the presentation of such requests, for the six months following that date.

According to the decree, Consob shall receive:

(i)   notifications of the intention to continue operating in Italy in the transitional period from UK investment firms;

(ii) applications for a license to operate beyond the transitional period as a non-EU-country firm from UK investment firms, or as an Italian investment firm;

(iii) notifications of the intention to continue operating in UK in the transitional period and applications for authorisation to practise their activities beyond the transitional period in a non-EU country from Italian investment firms.

Having not submitted such notifications - to be transmitted no later than 3 business days prior to the date of withdrawal - UK investment firms shall cease operating in Italy by the date of withdrawal.

The table below provides a guide to the requirements for UK investment firms, details of which can be found in Consob Communications no. 8 of March 29^th, 2019[3] and no. 10 of August 1^th, 2019[4].

In view of the approaching deadline of Article 50(3) of the Treaty on European Union, that has been further postponed to October, 31, 2019, Consob reminds intermediaries that provide investment services^[5] to promptly provide their clients, if they have not already done so, with appropriate information regarding any impacts stemming from the changed operating conditions caused by Brexit. In this regard, intermediaries shall inform their investors on either adherence to an Italian Investor Compensation Scheme or the extension of protection by the current UK Investor Compensation Scheme, in light of developments of the United Kingdom withdrawal from the European Union.  

Intermediaries are reminded to send compulsory notifications, applications and notices to Consob at the following certified email address: din.Brexit@pec.consob.it.

                                                                                                THE CHAIRMAN
Paolo Savona

Attached Table.

Notes:

[1] It is understood that the situation may be reconsidered in the light of recent developments in the negotiations on ratifying the withdrawal deal.

[2] To be understood as the period between the date of withdrawal and the end of the eighteenth month following this date.

[3] http://www.consob.it/documents/46180/46181/c20190329_n_8.pdf/c352fccc-4ae1-4f42-bb7c-04507139b564.

[4] Such Communication (http://www.consob.it/documents/46180/46181/c20190801_n_10.pdf/339f1abf-b705-4184-bdd3-fb417f7ad646) updates Communication no. 7 of March 26th, 2019.

[5] UK banks that provide investment services should refer to Bank of Italy website (https://www.bancaditalia.it/compiti/stabilita-finanziaria/informazioni-brexit/index.html).